One of the uses of the term 'due diligence' is in the world of business, broadly meaning checking things out before you make any significant business moves. Such moves can include the buying of businesses, mergers or investments in business ventures.
In simple terms, the due diligence processes enable you to 'do your homework', 'to look before you leap' and to avoid 'buying a pig in a poke'! Due diligence is about being prudent, careful and sensible when seeking to change your business interests.
The historical application of due diligence has been in relation to the financial aspects of any potential situation. For example, prior to buying a company, a buyer would gain access to and examine a company's books, to verify the financial status of that company.
Nowadays, due diligence is usually more widely applied, beyond financial considerations, investigating and reviewing legal areas and the full commercial picture. In reality, an attempt to learn everything about a venture before you commit and invest. A proper and effective due diligence therefore, goes way beyond a look at the books!
There a great number of sources of information and advice available about due diligence. Thus, if for example, you are looking to buy a business, an initial exploration online to gain a practical understanding of what you need to do will almost certainly lead you to a variety of due diligence definitions, explanations and checklists. There are some basic points to consider and build into a due diligence strategy, that will fit for your purpose:
• Are you confident to take on the due diligence processes on your own or do you now need to seek the advice and support of your accountant and solicitor?
• How much time will be needed to complete a due diligence exploration? A number of online sites recommend at least 30 days for this.
• How will ensure co-operation within your target interest, giving you access to accounts, historical records, management, facilities and systems, planning and market intelligence?
• Where else do you need to look for relevant information and feedback - stakeholders, customers, competitors, contractors, creditors and debtors, regulators, etc?
• What are in place and of value in terms of patents, licences and branding, and in the form of intangibles like intellectual property and goodwill?
Due diligence is an essential component in any significant business investment move. Most commentators suggest that through due diligence, it is inevitable that you will find some 'surprises'. It is better and almost certainly less costly if you find these before rather than after you have made your move!